Listen to Tim Cook

Wednesday, 15 October 2008

One thing Apple knows is what it does. Apple designs and produces very nice things. All this hubbub over low-cost laptops is outside the realm of what makes Apple Apple.

There has long been, especially in the business press, a strong bias towards encouraging Apple to act like a “normal” computer company. Remember when it was common for analysts to call for Apple to break itself apart into separate software and hardware companies? Or for Apple to obtain a license for Windows and make “well-designed” Windows PCs. Or for Apple to sell licenses for Mac OS X to Dell?

A lot of the current action in laptops, industry-wide, is at the low end of the market. Some of these machines look pretty interesting. None of them look like something Apple would make.

But yet there was (and is) this consensus that given current industry trends, combined with the rather shaky (to say the least) state of the global economy, well of course, what Apple needed to do was cheapen its MacBook lineup. Exhibit A, exhibit B, exhibit C.

What Apple announced Tuesday was exactly the opposite. Instead of making them cheaper, they made them better. Dramatic performance improvements in graphics, and a significant leap forward in industrial design and build quality. Cheap laptops creak and squeak at the seams. Apple’s new MacBooks are cut from solid blocks of aluminum and hardly have any seams.

Apple doesn’t make computers that people have to buy. They make computers that people want to buy.

The “netbook” market is an entirely different game. Apple may well go there eventually, but it won’t be for another year or two, and then when they do, it will drive the PC press nuts because Steve Jobs will announce it in such a way that makes it seem as though Apple invented the entire product category.

(Aside: I think — and this is nothing more than my own speculation here — that it’s more likely that a hypothetical really small (as in much smaller than even the Air), really cheap (as in less than $700) notebook computer from Apple would not be a Mac. It’d run some variant of “OS X” of course, but I think it’d resemble a hot-rodded big-screen iPhone with a keyboard, not a stripped down small-screen MacBook. The iPhone OS would run faster on a $600 netbook than it does on an actual iPhone. Mac OS X would run slower, probably a lot slower. Apple builds things up, not down. Just my hunch. (Also: It’s too bad Apple has already used the name “iBook”.))

Higher performance and improved build quality are in direct opposition to lower prices. These guys calling for $800 Apple notebooks have the company all wrong. To me, the most interesting part of yesterday’s event had nothing to do with product announcements, but rather was COO Tim Cook’s “state of the Mac” segment at the beginning.

This was Apple speaking directly to its investors and to the business press. Apple wants them to understand the Mac business. Cook outlined six main points which he claims Apple believes are the reasons behind the four-year-long growth in Mac sales:

Better computers

Better software

Compatibility

Vista

Marketing

Retail Stores

“You may wonder,” Cook said, “why is Vista on the list. I think it’s fair to say that Vista hasn’t lived up to everything Microsoft had hoped it would. And consequently, it’s opened doors for a lot of people to consider switching to the Mac.”1

What does not appear on that list is price. This is not to say price is irrelevant to the Mac, or that Apple is somehow immune to the circumstances of the economy, but simply that price is not and has never been one of the main factors in the Mac’s success. Cook’s list isn’t marketing bullshit — it’s an accurate, succinct description of Apple’s computer business.

Other PC makers fight viciously over pricing because it’s the only factor on which they can differentiate. Few of them bother trying to make better computers — most just build bland, junky wrappers around Intel’s reference chipsets. (Notable exceptions in the laptop space include Sony and Lenovo.) None can offer better software because they all ship the same version of Windows. They’re stuck with Vista. They all seem, for whatever reason, incapable of producing Apple-level marketing and advertising. And none of them who’ve tried have been able to do their own retail stores successfully. Price is all they have.

Cook then showed two pie charts. One showing the Mac’s unit share in the U.S. retail market at 18 percent, up from “a single digit number, just a few years ago”. Cook then drops the kicker, the single key point you need to grasp to understand Apple’s Macintosh business: “And what’s more impressive than this is if you look at revenue share. Because we focus on fully-featured systems, and we don’t compromise on quality, our revenue share is over 31 percent. That means that one out of every three dollars that’s spent on computers in U.S. retail is spent on the Macintosh. What a difference a few years makes.”

31 percent of the money on 18 percent of the unit sales. Those numbers are stunning — and they would not get more impressive by selling $800 MacBooks. Yesterday’s entire event, the whole thing, could be summarized by these five words from Cook: “We don’t compromise on quality.”

Cook really rubbed this point in, putting up a slide and reading aloud this quote from Peter Burrows of BusinessWeek:

“Vista looks like it could turn out to be one of the greatest missteps in tech history.”

The executive-level rivalry between Microsoft and Apple seems to be at the highest level since the John Sculley era at Apple. ↩︎